11.05.2017

Unplanning delusions

The collapse of the Soviet Union does not prove that planning is impossible, argues Mike Macnair

This is the second part of my review of Paul Auerbach’s Socialist optimism (2016). Perhaps it is better described as my discussion of some ideas which are posed by the general shape of Auerbach’s arguments; since, as I said in the first part,1 the methodological weaknesses of the book are such that to engage its arguments in detail would be pointless.

In the first part I argued that the claim that antecedent ‘human development’ was foundational to capitalist ‘development’ and, relatedly, to international ‘competitiveness’ was unsound. I went on to argue that the fashionable quality of this idea in the late 20th century flowed from the ‘educational reform’ agenda in the US and UK.

I argued that this agenda was, itself, the product of three sub-agendas: first, ‘declinism’ in relation to the rise of German and Japanese industry in the later 1960s-70s; second, business lobbies’ efforts to externalise the costs and risks of training staff; and, third, conservative efforts to enforce Gradgrind-style degradation of mass state education, motivated by a ‘never again’ response to the youth radicalisations (right as well as left) of the 1960s-70s. I suggested that all these projects had illusory end goals, which would, because of their very unattainability, lead to increasingly irrational persistence in pursuing them.

At the end, I went on to a particular aspect of the process of degradation: the ‘national curriculum’ and its relationship to the insistence on individual ‘human development’ found in Auerbach as well as among the ‘orthodox’ ‘human development’ writers. My point was that the aim of uniform education, even in the name of ‘equality of opportunity’ produced a reduction in collective capabilities. Individualism of aims mandated deepened bureaucratic control.2

The same turns out to be the consequence of ‘consumerist’ approaches to education (league tables, ‘freedom of choice’, the sovereignty of ‘student feedback’ and so on): just as competing car manufacturers and supermarkets offer narrowing ranges of choice, so do schools and higher education institutions. In fact, more so, since it is far harder to be a ‘niche producer’ of education than of clothes, books or other products.

But the other side of this coin is that the alternative - open acceptance of diversity of education - immediately poses to adults the ‘collective action problem’ of how to combine our diverse capabilities. This problem is, of course, no more than a special case of the general collective action problem of how to combine our different activities - so far as they affect others - more generally. Which, in turn, is the general problem of economic coordination.

Austrians

Ludwig von Mises, Friedrich von Hayek and similar authors argue that this collective action problem is solved, and can only be solved, by pure free-market mechanisms under a regime of law which rigorously excludes any redistributive mechanisms. For Hayek in his 1970s Law, legislation and liberty3 this legal regime would need to be buttressed by entrenched constitutional provisions against state interventionism - some limited forms of such entrenchment were adopted in the European treaties of Maastricht (1992).

Diluted versions of the argument, to be used to critique ‘central planning’, are commonplace - and are present in Auerbach. But it is important to be clear about the nature and implications of the ‘Austrian school’ arguments about economy and state. They are arguments at a very high level of abstraction and rigour - such that they are either wholly true or wholly false. The claim is that collective action problems cannot be solved except by market arrangements.

If they are wholly true it is not merely the case that central planning of the economy is an illusory goal: the same equally applies to all other non-market expedients in public policy. This includes rejection of - obviously - all sorts of nationalised industry and all forms of public welfare; but also, and equally, public education institutions, public highways and other rights of way, public parks and open spaces, planning/building controls and any forms of taxation (or particular tax rules) designed to create incentives of one sort or another, or which are merely not neutral in effect (the ‘principle of tax neutrality’).

Hayek himself is unrigorous on this front. He recommends ‘anti-trust’ legislation to control the development of monopolies; but on the assumptions of the Austrian school, if market competition issues in monopoly, then monopoly is the market-efficient outcome chosen by the consumers. It is also doubtful - on the basis of various side comments in his writings - if Hayek would actually have been comfortable with a society characterised by the ‘feast of Malthus’: ie, the routine presence of the unburied corpses of the starved unemployed on the privately owned streets - which is, again, logically implied by the case against non-market decision-making.4

This ultimately unrigorous quality reflects the fact that the Austrian-school writers cannot at the end of the day defend a concept of law, or the rules of law, or, hence, the right of property itself, as anything other than a collective action independent of the market.5 And the right of private property is completely foundational to the possibility of the market. The Austrian school critique of all forms of non-market collective action is therefore merely self-defeating.

Analogous grounds apply with equal force to the analogous but distinct arguments of idealist philosopher Michael Oakeshott against ‘rationalism’. Although distinct from Austrian school arguments (if anything by being a bit more rigorously anti-rationalist than them), Oakeshott’s arguments suffer the same petitio principii in relation to the rules of law and rights of property.

The supposed ‘escape’ from this problem offered by Hayek and Oakeshott alike is to appeal to Edmund Burke’s narrative of the long, gradual evolution of English law and explain it in terms of a supposed Darwinian natural selection process in the precedents: ‘real’ law is taken to be precedents, not statutes. Appeal is made to Fritz Kern’s early 20th century book Kingship and law in the Middle Ages6 as showing a supposed preference of the medievals for ‘ancient laws’.7

The reality is that the ancient property rights celebrated by Burke as the product of tradition and the gradual development of precedent were not ancient at all. They were to a very considerable extent the product of relatively recent intentional statutory redistribution: of the statutory dissolution of the monasteries, chantries and other charitable foundations under Henry VIII and Edward VI, and sale of the land thereby acquired by the crown; of the parliamentary ordinances abolishing the court of wards and then the feudal tenures during the civil war and republic, and their confirmation at the Restoration by the Tenures Abolition Act 1660; and of a series of enclosure decrees in chancery, and parliamentary private enclosure acts, expropriating the commons over the later 17th and 18th centuries.

(It should be said, incidentally, that the ‘national curriculum’ arrangements and so on, discussed last week, have implied for most kids that schools stop teaching any of this history about the origins of ‘actually existing’ property rights. The current standard focus on 20th century history, supposedly justified by ‘relevance’ and the accessibility of primary sources to students, actually amounts merely to a means of teaching standard media narratives and depriving the generations affected of the means of criticising standard media narratives.)

Some supporters of Hayekian, Oakeshottian or similar views attempt to ‘save the phenomena’ in face of the massive evidence against Hayek’s, Oakeshott’s, and so on, views of the development of law and of property rights. They do so by arguing that the whole process, including the statutes, the revolutions, etc, is to be regarded as a natural selection process or Hayekian ‘catallaxy’, by way of creating market order through unintended consequences. It would follow, however, that the whole history of the Soviet regime was also a natural selection process or catallaxy by way of unintended consequences. So the level of abstraction on which such Hayekian or Oakeshottian ‘critics of enlightenment rationalism’ are arguing is such that their assertions are completely empty of testable content or explanatory value.

The flip side of the point I have just been discussing is that the flat falsity of Austrian school claims in itself has no positive implications as such for the merits of Soviet-style central planning, or of ‘golden age’ European social democracy, or of the British ‘official communist’ and Labour left ‘alternative economic strategy’. It means one thing and one thing only: that you cannot argue from von Hayek’s, von Mises’, or Oakeshott’s general claims directly to the failure of Soviet-style planning, or of social democracy, or of the AES: to do so is to rely on an abstract, pre-emptive, general argument which is simply logically false.

The various ‘planning’ options which have been tried so far may well turn out to be unacceptable. But if they are, it will not be because non-market decision-making for common action is impossible or inherently tyrannical in the way in which these authors and those who hold similar views argue.

The relevance of the issue to Auerbach is the point I already made. Hayek’s and similar are general logical arguments that the impossibility of knowledge of the economy and society as a whole entails the impossibility of conscious planning, which then turns into a mere tyranny or impoverishment of the society. The nature of the argument is such that it is either wholly true or wholly false; and, in fact, it is wholly false.

But Auerbach - as he shows in chapter 1 of Socialist optimism and elsewhere episodically throughout the book - wants to borrow parts of the Hayekian anti-rationalist argument to critique Soviet-style general planned economy as a fundamental misconception due originally to Marx’s and Engels’ enlightenment rationalism. But at the same time he insists that in reality markets operate within frameworks set by states and laws. The second point entails the general falsity of the Hayekian argument, disproving the first. The contradiction is due to a basic misunderstanding by Auerbach of the level of abstraction and generality of the issues addressed by Hayek and similar authors.

Plausibility

Hayekian and similar arguments are untrue; but they have, since the 1980s, had a degree of spurious plausibility. Why?

In the first place, the argument is merely an extended and more systematic version of Adam Smith’s ‘invisible hand’ from The wealth of nations (1776). Smith’s concept was itself a toned-down version of Bernard Mandeville’s openly immoralist Fable of the bees (1714). The ‘Austrian’ line of argument argues that, even if the ‘invisible hand’ does not produce perfection, nothing better is possible because of the claimed impossibility of more than local knowledge.

An alternative line of argument is based on Leon Walras’s Éléments d’économie politique pure (1874) which argues from a marginal subjective utility theory of value for a possible perfect economic equilibrium - reinterpreted by Arrow and Debreu in the 1950s as what is commonly referred to as ‘dynamic stochastic general equilibrium’ (DSGE). Arrow’s and Debreu’s account makes clear that the assumptions of DGSE are, in fact, as artificial and unrealistic as a gravity-free physics (ie, more unrealistic than flat-earthism); in addition, subjective utility theories of value necessarily entail undisprovable Panglossian results, because the result itself is the only possible evidence of the underlying subjective utilities.

Both the Austrian school version and Walrasian general equilibrium obtain their general plausibility from the conditions in the growth-to-boom phase of the business cycle. In this phase (and overall in longer ‘up’ periods, like the post-1948 ‘long boom’) the idea that markets tend towards a dynamic equilibrium has a degree of attraction. It is still profoundly misleading; in reality, the growth of ‘free markets’ is necessarily accompanied by the growth of the bureaucratic and interventionist state, and in the absence of this state intervention markets tend not to equilibrium, but to extreme instability.

This tendency to fly apart is increased to the extent that market players act according to ‘rational’ utility-maximising, but mitigated by the fact that a substantial proportion do not aim to maximise utility, but merely to ‘satisfice’: ie, to do ‘well enough’. Since marginalist economic theory assumes utility-maximising in order to generate predictions, ‘satisficers’ are a problem for the theory.

However, the combination of state interventions and other non-market interventions (charitable foundations, and so on), with the activity of satisficers, is sufficient to create an appearance of economic equilibrium in boom periods. In slump periods - especially in prolonged periods of tepid booms and deeper slumps - natural equilibrium theories tend to lose some of their attractive power.

Actually, during the post-1948 ‘long boom’, general equilibrium and Austrian school theories were predominantly taken to have been disproved in theory by Keynes’s General theory and in practice by the course of events in and after the crash of 1929 and through World War II.

The reappearance of these ideas from the margins in the later 1970s and through to the present involved in very broad terms two elements. The first was that the US state abandoned its former policy of ‘containment’ of ‘communism’ and the associated Bretton Woods regime, support for right social democracy and so on, in favour of ‘rollback’. The US policy was not to create what actually happened (collapse at the centre of the USSR), but to get rid of open US support for military-nationalist ‘modernising’ regimes in the third world, seen to be vulnerable to ‘communist subversion’, and to accentuate national contradictions between the various bureaucratic regimes.

The most spectacular coup on this front was Nixon’s 1972 China turn, making China into a US ally against the USSR. But equally important were the 1971 adoption of the floating dollar, and the recycling of petrodollars through New York and London to make syndicated loans available to third world and Soviet-bloc countries through the 1970s, thus allowing Poland, Romania and Hungary to get some new western industrial investment.8 These turns created perceptions that integration into the international financial system could allow more rapid ‘development’ than either the full Soviet-style ‘command economy’ regime or mitigated forms of industrial planning and protection.

Going along with this policy came Jimmy Carter’s ‘human rights’ turn (1977) - always an explicit aspect of ‘rollback’ in which ‘economic freedoms’ were as important as political ones and much more important than the so-called ‘social rights’ (access to food, work, housing, health). At the same time, the US state funds which had been directed to right social democratic periodicals, lobby groups, etc through the 1950s-early 1970s were redirected to ‘neoliberal’ groups. The weight of the USA as a state was thus thrown behind what had formerly been marginal rightist views.

The second element was, of course, the Gorbachev ‘reforms’ from 1985, the fall of the eastern European regimes in 1989, and the collapse of the USSR itself in 1991. It was, of course, already true from the time of Khrushchev in the 1950s that ‘reformers’ in the Soviet economic policy apparat aimed to imitate market structures in order to improve the functioning of the economy. But by the later 1980s it was easy to find Soviet economists willing to advocate radical ‘shock therapy’ of the sort which was, in the event, delivered after 1991, and to accept the fundamental arguments of Mises, Hayek and similar authors. One such apparat figure is cited, for example, in Auerbach’s 1989 New Left Review article, ‘The transition from actually existing capitalism’, co-authored with Meghnad Desai (since 1991 a Labour peer) and Ali Shamsavari.9

Once the eastern bloc and Soviet Union fell, in 1989-91, the narrative was complete and closed; any suggestion of an alternative to capitalism had to incorporate a standard gesture to the idea that generalised economic planning was impossible. This in spite of the fact that there had already been extensive critiques of Hayek on knowledge, and that the narrower ‘mathematical complexity’ arguments of von Mises against planning were seriously called into question by the development of computing power by Paul Cockshott and Allin Cottrell as early as 1993.10 The fall of the USSR was taken as a sufficient disproof of the possibility of economic planning, without considering whether there might be more limited and specific features of Soviet-style planning which led to the fall.

There were - obviously - interests at stake in this choice to leap from the failure of the USSR to the impossibility of planning in general. The argument for the impossibility of planning was not merely a case against Stalinism made into a case against socialism in general. It was a case for the full ‘neoliberal’ package of deregulation, International Monetary Fund ‘shock therapy’, ‘Washington consensus’, and so on. In this respect it reflected the particular interests of the USA (against other capitalist countries’ protectionism) and of US and British financial capitals (against ideas that anyone other than financial markets had the capacity to make rational resource-allocation decisions).

At this point we have arrived at 1992 and the date of Auerbach’s original NLR article, ‘Onsocialist optimism’. It is highly symptomatic that in that article Auerbach could write that

... in India, Mexico, the economies of eastern Europe and many other countries, the engendering of an economic environment relatively open to the influence of international market forces may be the only effective weapon available for combatting the stagnation emerging from the damagingly intimate relations that develop between a state bureaucracy and local producers.

The book, retaining the fundamental structure of the arguments of the article (if varying them very considerably in detail) remains a violently ‘1990s’ product. But since 1992 a very great deal of water has passed under bridges.

Market testing

First, ‘shock therapy’ in the former Soviet Union turned out in the 1990s to mean not modernisation of the economy, but substantial deindustrialisation (and, indeed, reduction of agricultural production too11).

It is incidentally to be observed that the USSR’s highly educated workforce turned out not to be an asset that could be parlayed into reindustrialisation after shock therapy, as Auerbach argued could happen on the basis of post-1945 Japan and Germany. In Japan and western Germany it reflected US geopolitical interests in the cold war; the non-reindustrialisation of the former USSR reflects US geopolitical interests after the fall.

Already by 1995, Peter Nolan’s China’s rise, Russia’s fall12 documented in depth consequences of ‘shock therapy’ in the USSR and the circumstance that the Chinese bureaucracy’s gradualism, failing to take the advice of the western ‘development’ snake-oil merchants, was massively more successful than the post-Soviet leaderships’ acceptance of this advice. Nolan makes the point at an early stage that the Russian command regime cannot really be said to be a variant of ‘planning’; his argument is that the transition to even partial use of market mechanisms requires a lot of … planning.

Second, the so-called “great moderation” turned out to be delusive. The ‘east Asian’ and ‘long-term capital management’ crises of 1998 were followed by the dot.com crash of 2001; both were solved by bailouts and soft money policies; when the Fed attempted to raise rates in 2007, the result was to set in motion a chain of events leading to the crash of 2008-09. There is little doubt that the capitalist economy has been addicted to cheap money since then; but, in reality, the event itself was a symptom of a failed attempt to overcome an existing cheap-money addiction without imposing the costs primarily on large ‘saver’ and creditor interests.

Third, the ruinous consequences of ‘shock therapy’ in the former USSR are very far from being unique. Every rapid development of an ‘open economy’, celebrated by the free marketeers and their nodding choruses among the Labour right, the ex-Eurocommunists, etc, has as its converse in the last 30 years ‘capital flight’ from elsewhere. Yves Marchand’s and Romain Meffre’s art-book The ruins of Detroit13 is aptly symbolic. This, of course, is in the heartlands of the American mid-west; and, though Donald Trump did not take Detroit city in the November election, he did take Michigan state. The ruins reflect the tendency to financialisation of the US economy - not, as yet, remotely as far developed in the UK, but already there.

The ruins left behind by the free movement of capital elsewhere also imply victories of rightwing populism of one or another sort: Trump, but also Salafi Islamism in the Middle East, strongman Putin backed by holy Russia orthodoxy, Hindutva communalism in India, Yasukuni Shrine Shinto revanchism in Japan, Brexitism, and so on, and so on ... Neoliberalism is increasingly visibly intolerable. The same is true of left variants of neoliberalism.

Going alongside this is increasing war. Tony Blair came to office in 1997 saying that his priority would be “education, education, education”. By 1999 he was presiding over British participation in military intervention in the former Yugoslavia. In 2000 a smaller-scale unilateral British intervention in Sierra Leone followed. In 2001 he took Britain into the Afghanistan war, and in 2003 into GW Bush’s ‘war of choice’ invasion of Iraq. The Afghan war is still going on; the Iraq war after several mutations now takes the form of the ‘war’ on Islamic State. “Education, education, education” turned out to be private finance initiatives transferring property to the private sector, while risks remained with the public sector; and alongside it, “war, war, war”.

Auerbach’s underlying argument against planning was not so much that it could not work. That was assumed from the Soviet experience. Rather, in the 1989 Auerbach/Desai/Shamsavari article, Engels - via Kautsky and Iurii Larin - was blamed for Stalinist ‘planning’. In the 1992 article, Auerbach blamed Marx for allegedly being influenced by authoritarian utopian socialist Claude Henri de Rouvroy, comte de Saint-Simon (1760-1825) and, boringly following Eduard Bernstein, for ‘chiliasm’. In the book, clarity of argument is buried in the mess, but the same line seems to persist.

More generally, Auerbach’s claim was that competition and planning are ‘dialectically’ interpenetrated, so that there is no tendency in capitalism towards monopoly or towards the displacement of market exchange by planning or even bureaucratic administration. Hence, central planning does not grow as a tendency out of ‘actually existing capitalism’; therefore, he argues, it is utopian.

I make this point at this moment because we can now see the objective tendency in capitalism which grows out of setting the forces of competition free for Schumpeterian ‘creative destruction’ under conditions of highly developed capitalism and industry. Yes, there is some ‘creative destruction’. But there is enough uncreative destruction to set up a marked tendency towards nationalism and towards war (itself a form of uncreative destruction). The wars have got larger and more destructive in character. Recent US operations in Ukraine and in east Asia threaten - though not absolutely immediately - even larger, great-power wars, with some threat of the use of nuclear weapons.

Auerbach poses his alternative to the existing order primarily in terms of some sort of ‘mixed economy’, but with a priority for education. As an immediate alternative to capitalist rule, that is not an unattractive idea. The problem is that, in order to have it, it is necessary to get rid of the free movement of capital and to create mechanisms to hold capitalists in subordination.

The ‘cold war’ regime was half way to such an arrangement: Soviet tanks on the Elbe, the Chinese overshadowing the far east and mass communist parties in a good many capitalist countries meant that the capitalist class was willing to make concessions: the US making concessions to rival national capitals at the level of protectionism, and so on; and capital concessions to the working class in many ‘front-line’ states (especially in Europe).

Any such subordination of capital requires some degree of planning. It thus certainly requires rejection of the claim that planning is impossible. It probably requires the acceptance of some loss of the ‘efficiency’ gains of capitalist competition. We need to make the choice, because the logic of unfettered competitive capitalism is the line of development we have seen since the middle 1990s: gradually slipping towards global war. The belief that this choice can be dodged is the fundamental illusion in Auerbach’s work.

Satisficing

I am going to say relatively little more, because I have already written on the issue at some length two years ago.14 I agree with Auerbach on the fundamental point that the aim of socialism is the emancipation of human potentials generally, not the maximisation of productive output. I also agree that part of the problem with the USSR and its imitators was precisely that they set the aim of socialism in terms of maximisation of output. The paradox, however, is that Auerbach’s (and in 1989 his co-authors’) critique of the failure of Soviet planning is precisely its failure to maximise output and productivity, relative to the capitalist ‘west’.

The USSR and its imitators failed for a number of reasons, but not for the reason that planning is inherently impossible.

Firstly, socialist construction in a single country is impossible, because industrial production depends on an international division of labour. Further, the idea of backward countries overleaping the advanced through ‘combined and uneven development’ was illusory and rested on a misunderstanding of the emergence of capitalism. Russia’s relative lack of infrastructure and population density, and the persistence of some pre-capitalist social relations, continued to hobble its economy throughout the 20th century.15 The ‘advanced capitalist countries’, drawing on a global division of labour and global profits, could afford both guns and butter. The USSR could not.

In addition, the regime of informal property rights in information (via state secrecy and bureaucratic and managerial confidentiality) and in bureaucratic ‘turf’ (via the absence of freedom of speech and the right to organise) were fetters on the development of production. A fairly recent example is Slava Gerovitch’s account of why political and bureaucratic concerns about control of information blocked Soviet proposals, from 1961 on, to build a net comparable to the Advanced Research Projects Agency Network.16 More generally, control of information, and bureaucratic incentive structures, produced managers ‘gaming the plan’ - and no means of preventing them doing so without undermining the underlying claim to bureaucratic and managerial competition.

Conversely, a substantial level of ‘waste’ has to be accepted: Marx from an early date argued for “continuous relative overproduction” to allow leeway for problems of one sort or another.17 The standard critiques of planning emphasise its waste, but underestimate the very extensive waste in capitalism. The ‘planning illusion’, which was a real problem, was to imagine that socialism could become more efficient than capitalism by eliminating capitalist waste without producing its own forms of waste. An economy without waste is like a machine with zero tolerances on the moving parts, apt to seize up.

More fundamentally, a planning regime inherently contains no automatic incentives for random economic growth. In class societies in general the aspiration to live like the class elite (and, on the other hand, the fear of starvation) drive effort and random innovation. In a planned economy these incentives are taken away. But in a world where random innovation and ‘growth’ is taking us into serious human-induced climate change, this is a virtue, not a vice. Planning as a rational maximiser probably will not work. But planning on satisficer principles can show us a way out of the gradual downwards spiral affecting global society.

mike.macnair@weeklyworker.co.uk

Notes

1. ‘What kind of education?’ Weekly Worker May 4.

2. A point also made by David Graeber in The utopia of rules (New York 2015).

3. London 1973-79.

4. Eg, in Law, legislation and liberty Vol 2, p139: “Nobody capable of useful work need today lack food and shelter in the advanced countries, and for those incapable of themselves earning enough these necessities are generally provided outside the market.” The statement, besides being empirically false of the USA when it was written and of the UK soon afterwards, demonstrates that Hayek was not willing to defend the ‘feast of Malthus’ in spite of willingness to do so being foundational to the strength of his claims against non-market collective decision-making.

5. That law is a non-market product is prima facie obvious and apparent even to libertarian and anarcho-capitalist writers far more consistent than Hayek and Mises. On a property regime as itself a ‘commons’ posing a non-market collective-action problem, see C Rose Property and persuasion Boulder 1994.

7. Kern, writing mainly about the early Middle Ages, ignored the rather active Anglo-Saxon king-legislators (P Wormald The making of English law Oxford 1999). This is not catastrophic for that period. But then to use his work to support a Burkean narrative of English legal history down to the modern period, in despite of the fat volumes of the Statutes of the realm beginning at 1225, becomes fantastical.

8. There is a discussion of the particular case of Poland, with some broader context, in F Bartel, ‘Fugitive leverage: commercial banks, sovereign debt, and cold war crisis in Poland, 1980-1982’ Enterprise and Society Vol 18, pp72-107 (2017).